From left to right: your humble IPE blogger (in need of a haircut), Li Fan who is Deputy Director of the Department of Policy Planning at the Chinese Ministry of Foreign Affairs, and Niall Fergusonwho is Philippe Roman Chair for 2010-2011

"Emmanuel, let's take a photo with Professor Ferguson before the LSE IDEAS sign!" said my colleague from the Chinese Foreign Ministry, Dr Li Fan at our farewell party yesterday for The Ascent of Money guy. Despite being somewhat miffed at the Chinese government at the moment for largely unexplained strong-arm tactics over the South China Sea--or the West Philippine Sea as our local media now calls it--I couldn't begrudge the kindly Li Fan. Hence the photo. Having completed compulsory military training, I am of course subject to being called up to serve in the Armed Forces of the Philippines. While the prospects are remote, I have enduring anxieties about being sent to certain death defending Philippine interests in the Spratly Islands against the vastly superior PLA. I'm not keen on suicide missions.

At any rate, I am sure that I've mentioned that PRC Foreign Minister Yang Jiechi is an alumni of the LSE. Being ever so fond of his alma mater (or something to that effect), they send ministry officials to visit us as Chevening Programme Visiting Fellows every half a year or so. These fellowships are partly funded by HM Foreign and Commonwealth Office and they provide an opportunity for us to interact with the current batch of Chinese policymakers. Certainly, it lets us at LSE IDEAS--staffed as it is with former diplomats--understand our counterparts in the world's rising power that little bit better.

You would expect me to say this about my employers, but the basic idea underpinning our work here at LSE IDEAS is conceptually sound: by gathering academics, diplomats and policymakers under one roof, we are able to draw from a wider range of ideas in solving questions of diplomacy, strategy and international affairs. Oftentimes academia degenerates into something isolated and impractical with lots of number-crunching for its own sake but with few policy implications. We try to strike a balance: while we attract folks like Niall Ferguson who offer distinctive (if controversial) perspectives on various economic phenomena, we too welcome diplomats who actually *do* international relations.

Though he has his detractors, Henry Kissinger who Professor Ferguson is preparing a biography about could never be accused of being a bookish academic as he hosted the now-famous Harvard International Seminar which featured many names who would soon be a who's who of global leadership in the sixties. I wonder why Americans don't have a similar programme: instead of churning blood-curdling invectives against the PRC on a regular basis, why doesn't the US have a diplomatic outreach effort centred on academic exchange to learn more about those conducting foreign policy in China? If a second-string world power does it, why not America? Though I often am at odds with what Niall Ferguson writes, I fully agree that the US has no grand strategy at the present time which it used to have with Kissinger.

I've learned quite a lot from interacting with my PRC colleagues since they are seated right next to me. Although they are quite often quick to toe the (Chinese Communist) party line when in doubt, there are moments of candour which I value as a citizen of one of China's smaller neighbours.

The occasion for this photo is the impending departure of Niall Ferguson from our happy little camp in Holborn.The day before that, Li Fan explained "What China Wants" in compressed form as she too is leaving soon for Beijing. It should thus surprise no one that my time here is limited as well since I will depart for parts unknown in due course. There's a big world out there and I shall be taking the IPE Zone show on the road for the umpteenth time. But, it will be good to recall a time when I was at the centre of it all with diplomats from the world's rising power and the famously itinerant economic historian of our age, among others.

In case you missed it, the G-20 recently held a meeting of agricultural ministers in gay (as in happy) Paris. Given the wide range of global governance problems, focusing on things other than finance is welcome even if they ultimately return to matters of Mammon. France being the current head of the G-20 as well as the EU's largest agricultural producer and the world's second largest exporter of such products--its interest in the matter is evident. That said, we too came to an impasse over two important agricultural matters at the aforementioned meeting.

First, government subsidies for the production of biofuels remains a hot topic. Some blame diversion of food crops to biofuels as one reason for soaring food prices. Certainly, I would distinguish among the cost-effectiveness of such solutions. The US programme is a massive financial boondoggle, whereas that of Brazil has established its economic rationale for quite some time. At any rate, the UN Food and Agricultural Organization (FAO) believes that curtailing such subsidies should alleviate price rises hurting some of the countries hardest hit by rising food prices. A recent NY Timesop-ed has this to say on the matter:

The price of agricultural commodities has surged by more than a third over the past year — cereal prices by 70 percent — surpassing even the levels that sparked widespread food riots in 2008. According to the World Bank, the rise in prices pushed 44 million more people into hunger in the second half of 2010.

It is disappointing that the agriculture ministers from the 20 large industrial economies who gathered last week in Paris failed to end two policies that are a big part of the problem: bans on agricultural exports by certain producers and government supports for food-based biofuel production.

A report for the Group of 20 meeting by the United Nations’ Food and Agriculture Organization, the World Bank and others noted that eliminating or curtailing these policies would help mitigate the spikes in prices that have deepened hunger in the poorest countries in the world.

The United States, Brazil and several other biofuel makers opposed an agreement to cut support for biofuels. This country is the world’s biggest ethanol producer. The 13.5 billion gallons made here last year used about 40 percent of the nation’s corn crop. Government supports include a nearly $6 billion annual subsidy for ethanol makers.

The ministers agreed only to further study the relation between biofuel production and food prices. That is just an excuse for continuing to protect these industries. The cost should be clear to all by this point. The report to the Group of 20 noted that biofuels consumed 20 percent of the global sugar cane crop between 2007 and 2009, when food prices soared, as well as 4 percent of the beet crop and 9 percent of the world’s production of coarse grains like corn.

There's also the matter of major agricultural producers refusing to export their products, also exacerbating high prices worldwide:

The ministers also failed to forbid the use of export barriers to hold down food prices at home. Argentina [see my earlier post on its soy export limits], Russia and more than two dozen others have adopted bans since prices began to surge, sending global prices even higher and discouraging investment in food producing regions. The ministers did agree that countries could not restrict sales to the World Food Program so it can continue to address crises. It is not enough.

That said, the speculation-wary Sarkozy has shown his influence in putting in place mechanisms for determining if rising prices are due less to supply and demand dynamics but trader profiteering, howsoever defined:

The agricultural summit meeting, the first of its kind, did make some progress. The participants agreed to set up a system to monitor world food stocks and production to prevent misinformation that can contribute to price fluctuations. They also agreed on a pilot program for an emergency food reserve system to respond to shortages in vulnerable countries.

The Guardian also has a summary of other areas discussed if you are further interested in this important topic.

Uh-oh, here we go again with another one of these "China is pricing itself out of the cheap labour market" stories. Having recently made a mini-roundup of these, let me stick with what's supposedly new in this latest TIME story. At the national level, things are undeniably on the way up:

In what is supposed to be a land of unlimited cheap labor — a nation of 1.3 billion people, whose extraordinary 20-year economic rise has been built first and foremost on the backs of low-priced workers — the game has changed. In the past decade, according to Helen Qiao, chief economist for Goldman Sachs in Hong Kong, real wages for manufacturing workers in China have grown nearly 12% per year. That's the result of an economy that's been growing by double digits annually for two decades, fueled domestically by a frenzied infrastructure and housing build-out — one that, for now anyway, continues apace — combined with what was for a time an almost unquenchable thirst for Chinese exports in the developed world. Add to that the fact that in the five largest manufacturing provinces, the Chinese government — worried about an ever widening gap between rich and poor — has raised the minimum wage 14% to 21% in the past year. To Harley Seyedin, president of the American Chamber of Commerce in South China, the conclusion is inescapable: "The era of cheap labor in China is over."

Regionally speaking, there are beneficial effects. Dearer labour in traditional manufacturing hubs located near Eastern ports makes hiring those in the interior more attractive. A recurring story of Chinese inequality has been that of uneven development between interior and coastal provinces; this new fact of labour life may spur Chinese wage rebalancing of a sort. Plus, there may be less pressure for itinerant workers to travel far to find work:

But higher wages have also improved things in China's western region, where the government has long tried to encourage investment. In the past year, many multinational and Chinese companies have expanded or relocated inland, where labor is still cheap.

From China's perspective, that's exactly the sort of trade-off it seeks. As Andy Rothman, chief China macro strategist at CLSA Securities in Shanghai, says, "People in Sichuan or Henan or wherever can stay closer to home and find a good-paying job" instead of having to flood east each year to live in a company dormitory far away from their families. "How is this a bad thing?"

Lastly there's an interesting inversion underway according to American MNCs operating in China from AmCham surveys. Whereas three-quarters used to believe their China operations were there to serve export markets, the same proportion now believes they are there to sell in domestically in the PRC. A welcome change in helping alleviate global economic imbalances, I say:

Many multinationals, meanwhile, have long since begun to focus their China manufacturing operations on the vast Chinese market. That HP factory in Chongqing produces its laptops only for the home market. In a survey eight years ago, the American Chamber of Commerce in South China found that 75% of its members were focused mainly on export markets. By last year, that number had flipped: 75% of 1,800 respondents now say their manufacturing operations in China are focused on serving the Chinese market. That's mainly because China's workers are steadily getting richer. For them, and pretty much everyone else concerned, that's the rarest of commodities in a troubled global economy: good news.

I have some quibbles with the generalization that Chinese workers are steadily getting richer. Returns to labour in relation to other factors of production leave much to be desired, but more on that later. Still, time moves on.

A few hours ago we received word that River Plate, the most storied of Argentinian football clubs which has helped spawn many global footballing legends, was relegated from the first division for the first time in its 110-year history. This resulted in riots in Buenos Aires. How the mighty have fallen! It of course got me thinking about another tarnished has-been in the United States of America. Yes it's falling quite fast in various global league tables, but when will it finally be banished from the commanding heights of the world economy? As you'd expect, the dollar being the leading reserve currency and US Treasuries' AAA status are two indicators under pressure.

I am of the opinion that America deserves to be kicked in the balls as hard as possible as just desserts for its boorish financial behaviour. Plus, there's the added benefit of punishing those continuing processes of subprime globalization by hurting both American debtors and creditors alike. In this vein we have two noteworthy and promising developments. First, UBS recently polled central bankers holding a total of $8 trillion in reserves about the future make-up of these assets. It seems most are getting fed up with America as sentiment towards the currency is diminishing even further as the dollar approaches all-time lows on any number of indices. End result? Most see a movement towards a portfolio of various currencies quite soon:

The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn. More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.

That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency. UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management.

Good stuff. However, I am even more anxious to see an even swifter and harder kick delivered to Uncle Sam's (rather minuscule) nuts. For instance, I've covered some dire scenarios of what may happen if the US does not raise its $14.3 trillion debt ceiling and effectively defaults on its obligations. While unlikely--an undisciplined and unprincipled debt addict will never refuse a larger fix, just you wait and see--don't forget that America's creditors would also take a hit. Which, again, is part of the attraction since those who bankroll American debt addiction have it coming too.

And we don't have to wait for an outright credit event; a downgrade will do in financially waterboarding America's foolish creditors who fully deserve such treatment. McGraw-Hill estimates potential losses to US bondholders can amount to some $100 billion:

Investors in the US government bond market could face losses of up to $100bn if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill, the parent of Standard & Poor’s. A ratings downgrade that results in higher bond yields and lower prices could also mean the US Treasury paying $2.3bn-$3.75bn a year more in interest on financing a $1,000bn annual budget deficit.

“If Standard & Poor’s or any of the other major rating agencies downgrade the US, Treasuries would likely drop in value, possibly by as much as $100bn,” said analysts at S&P Valuation and Risk Strategies, a research team separate from the agency.

As an American leader of recent vintage liked to say, bring it on. Time waits for no one; ask River Plate.

Environmentalists usually applaud countries or regions where regulations are most stringent for obvious reasons. Aside from encouraging better fuel economy or lower emissions, there can be substantial knock-on effects. Consider America. The United States remains the world's second largest car market after China. With the state of California leading the nation in regulatory standards for automobile emissions--some vehicles sold in the 49 other states don't meet California regulations--auto manufacturers often just adopt the standard mandated by California. End result? Even if other states' lawmakers are not as concerned with the environment, standards are ratcheted upwards by a major market mandating standards exceeding those of others. And it certainly is welcome: those of you who've experienced LA smog at its worst know what I'm talking about.

Now we come to a grander analogy of the California-USA emissions dynamic. The European Union will in 2012 include in its carbon emissions scheme all airlines that fly in and out of the EU--including non-European ones. Certainly this sort of Cali-esque ratcheting up is welcome from my point of view given how recalcitrant the world's two largest carbon emitters--China and the US in that order--have been at venues alike the Copenhagen summit.

That said, the EU may have shot itself in the foot as far is its commercial fortunes go. You see, aside from being the region which will soon lead the world in attempts to curb aerospace emissions, it too is home to the world's bestselling passenger aircraft manufacturer in Airbus. It's a problem familiar to millions when environmental and economic interests seem to collide. The basic contours of the current impasse go thusly: PRC leadership is making its displeasure over EU aerospace sovereignty-at-bay known by jeopardizing previous orders for Airbus jets. Privately owned airlines based in Hong Kong are reportedly not immune since the PRC leadership is busy trying to scuttle previous multibillion dollar deals.

In other words, the PRC seeks to water down carbon trading schemes being applied to its airlines serving EU-27 nations by putting Airbus' order book under pressure. From the WSJ:

China's anger with the European Union's emissions-trading scheme for airlines has delayed the revealing of a major Airbus deal and could undermine upcoming deals, according to people familiar with the situation. Airbus, a unit of European Aeronautic Defence & Space Co., had expected to announce at the Paris Air Show this week that Hong Kong Airlines Ltd. ordered 10 of its A380 superjumbo jetliners, with a catalog value of almost $4 billion. The deal's unveiling was put on ice by officials in Beijing, who must give final approval, these people said.

The Chinese government held off because it disapproves of the EU's intention to regulate greenhouse emissions of foreign airlines operating to and from the 27-country bloc, according to the people close to the talks.

An Airbus spokesman said the company wanted to name the A380 buyer, "but the political environment would not allow us to do that." A Hong Kong Airlines spokeswoman earlier this month said the carrier planned to announce an A380 order at the trade event outside Paris. The A380 deal was completed before Beijing interceded and appears not to be in jeopardy, said one person close to the situation. But other planned orders for big Airbus planes have been frozen, this person said.

"The Chinese have told us directly that their airlines are not allowed to get into deals with Europe," said a person close to the European side of the discussions. A spokesman for the Chinese mission to the EU recently said that the country is "opposed to the EU's inclusion of [Chinese] airlines" in its emissions-trading plan. The spokesman didn't immediately respond to questions about the situation with Airbus.

For now, China's anger is unlikely to hurt the European plane maker, which has an order book of more than 3,500 planes for customers globally. But China is the biggest growth market world-wide for aviation. Airbus in 2009 opened an assembly plant in Tianjin, China, to tap the local market and curry favor with the government.

To no one's particular surprise, the commercial (Airbus) and political interests in the EU are at loggerheads. There is also arm-twisting in the opposite direction as the PRC looks set to put a squeeze on permissions for European carriers wishing to fly to increasingly lucrative Chinese destinations. That is, Europeans may make some of the best commercial passenger aircraft, but the locations to which they will increasingly fly to are in the Asia-Pacific. In other words, this political-economic quarrel is possibly quite evenly matched:

The EU's pollution-control plan, which is set to include aviation starting in January, forces any carrier departing or arriving at an EU airport to buy credits for greenhouse-gas emissions above specified levels, with large fines for noncompliance. China's move appears to be the first retaliation against the EU program. China, the U.S., Russia and other countries have strongly objected to the plan. They see it as unilateral and potentially illegal because it may assert extraterritorial jurisdiction on carriers from other countries.

"A global issue needs a global solution," said the Airbus spokesman, who called the plan "a bureaucratic tiger." Airbus and the Association of European Airlines last month wrote to top EU officials to warn about potential retaliation from China. EU officials have repeatedly said they won't retreat on their program.

Some European airlines have recently held back on asking for permission to increase capacity on Chinese routes because they expected applications to be rejected, said one person with knowledge of the situation.

Aside from Boeing possibly taking away Airbus orders over emissions, those other whiny superpolluters, the Americans, are already complaining at the ECJ:

The U.S. government on Tuesday formally presented its opposition to the EU plan for the first time at a meeting with EU officials in Oslo. A group of U.S. airlines has separately filed suit against the EU plan. The first hearing on that case before the European Court of Justice is due on July 5.

So it seems the world's superpolluters--China and the US which are #1 and #2 respectively in carbon emissions--are keen on punishing those trying to do Mother Earth some favours. Still, I have to applaud the EU stance on this matter. Whether it can hold out on principle long enough to see similarly stringent regulation adopted worldwide--the ultimate goal--will be fascinating to watch. Airbus won't be crying uncle anytime soon, so what the heck...

CONCACAF should be ashamed of itself. I think it was a f***ing disgrace that the entire post-match ceremony was in Spanish. You can bet your ass if we were in Mexico City it wouldn't be all in English - Team USA goalkeeper Tim Howard after losing to Mexico 4-2 in Los Angeles during the Gold Cup

Sour grapes, Howard? This assertion is untrue. Watch the footage. Yet I suppose I too would be miffed if I allowed my toughest rivals four unanswered goals. Race riots aside, something that really blows apart the myth of the United States as a melting pot is when the Mexican national football (soccer) team El Tricolor plays its United States counterpart on the latter's home soil. Team USA is booed and jeered lustily, often by US residents with roots south of the border. Where's the love of country? It's not an isolated incident as this phenomenon has been going on for years, posing an interesting sociological question of where Chicano loyalties lie. With Hispanics accounting for over half of US population growth, these dynamics invite further examination.

The CONCACAF Gold Cup is a biennial regional competition for top football bragging rights among countries in North America, Central America and the Caribbean. Whatever the tournament, though--friendlies, qualifiers, and whatever else have you--the oddly enduring sight of Team USA being booed on home soil remains when matched up against El Tricolor . And so it was for this year's Gold Cup finals matchup. Despite taking an early 2-0 lead, Team USA was eventually overcome by a Mexican side featuring the emerging star Chicharito (of Manchester United fame) at the Pasadena Rose Bowl, urged on by strong home away from home support. It was not a pretty scene for the gringos as most of the 93,420 attendees were for El Tri. From the LA Times:

It was imperfectly odd. It was strangely unsettling. It was uniquely American. On a balmy early Saturday summer evening, the U.S soccer team played for a prestigious championship in a U.S. stadium…and was smothered in boos. Its fans were vastly outnumbered. Its goalkeeper was bathed in a chanted obscenity.

Even its national anthem was filled with the blowing of air horns and bouncing of beach balls. Most of these hostile visitors didn't live in another country. Most, in fact, were not visitors at all, many of them being U.S. residents whose lives are here but whose sporting souls remain elsewhere. Welcome to another unveiling of that social portrait known as a U.S.-Mexico soccer match, streaked as always in deep colors of red, white, blue, green...and gray.

With loyal "Americans" like these, who needs furriners?

Even when the U.S. scored the first two goals, the Mexico cheers stayed strong, perhaps inspiring El Tri to four consecutive goals against a U.S. team that seemed dazed and confused. Then when it ended, and the Mexican players had danced across the center of the field in giddy wonder while the U.S. players had staggered to the sidelines in disillusionment, the madness continued.

Because nobody left. Rather amazingly, the Mexico fans kept bouncing and cheering under headbands and sombreros, nobody moving an inch, the giant Rose Bowl jammed for a postgame trophy ceremony for perhaps the first time in its history. And, yes, when the U.S. team was announced one final time, it was once again booed.

A long time ago, I tagged along with a Mexican-American friend to visit San Antonio from Houston (two increasingly Hispanicized cities themselves). Despite subsequently serving for the US military and one of those nefarious private security contractors besides in Iraq--the very definition of an ugly American to many--I will never forget his narrative explanation of a key event in US history. While diehard gringos know the battle cry of "Remember the Alamo" by heart, he simply said "We kicked their ass" without a trace of irony.

There are certainly reasons you can point to as to why this undercurrent of Chicano resentment keeps bubbling to the surface. Certainly, sporting events can be venues where latent discontent is manifested. Latinos are often discriminated against as "illegals" even if they are not. Discriminatory legislation is often bandied about as a result. There's also the fact that those of Mexican descent have had a more difficult time economically than others in this supposed melting pot.

Likely, many Latin Americans believe that they moved to "America" due to economic necessity and not out of any great abiding loyalty to a country presumptuous enough to name itself after two vast continents. With the US economy increasingly down in the dumps, this instrumental justification grows more specious. As the land of opportunity becomes more of a curse, expect even more overt displays of anti-American sentiment from this increasingly large yet often marginalized group. Yes, Team USA versus Mexico in the US of A with the former getting booed may portend similar dynamics on a larger scale.

Some parting thoughts:

Football (soccer) as a popular sport in the US is still a faraway dream despite considerable grassroots participation judging from indifference to Team USA in "international" competition;

Mexican-Americans have seriously divided loyalties;

A supposed reason for the sport's prospects in the United States is its growing Hispanic population. But, if much of this population more or less throws the finger at the home team and cheers on Mexico, well, you can figure that one out;

To remedy these unedifying spectacles, apparently clueless organizers Stateside should try to hold these competitions in states like Maine--the most homogeneous state with a 95% white population. New Jersey won't quite do. While the crowd is almost certain to be smaller, holding these events in border states is just asking for it;

"Founding Fathers"-style national myths need reconsideration in this day and age given that Anglos will be the minority in not that many years.

I can certainly sympathize. It's pretty bad to hear "Yankee Go Home!" all over the world to come home and find that, gee, you're not welcome there either. What this phenomenon bodes for the United States is certainly an interesting question. Strangers in your own land--some melting pot, eh, muchachos?

Due to an unfortunate circumstance, I have had yet another miserable experience of coming across pseudo-anti-globalization figure Naomi Klein's typically inaccurate ramblings on how Larry Summers was the creator of the G-2o. In some scribblings prior to last year's G-20 gathering in Toronto, she wrote the G-20 is "a global menace invented by Larry Summers." As you would expect from a habitually factually challenged individual, this assertion is not true. Instead, the G-20 is the brainchild of a comparatively lesser known Canadian.

Is Larry "Wooden Racquets" Summers indeed the father of the G-20? I beg to differ. To be sure, he remains a most controversial character. From being one of the chief architects of high-era neoliberalism during the Clinton administration, he's become a deficit lubberpar excellence as of late. As long as it was poor countries feeling the pinch of the standard gospel of liberalization, privatization and deregulation, there was no problem with it for him. But now that the United States has experienced being down in the dumps--probably for good, even--he's turned into the most avid cheerleader for Obamanite deliberalization, nationalization, and reregulation. Typical American hypocrisy.

That said, Larry Summers did not invent the G-20. Rather, proper attribution would give that honour--or dishonour if you're a Naomi Klein fanboy (poor you)--to former Canadian Finance and Prime Minister Paul Martin. Be forewarned that he is highly regarded in these parts, having first explained the rationale for and then implementing fiscal cuts in Canada that have spared it from American-style gridlock over budgetary matters.

In the interest of historical accuracy, the Globe and Mail has the authoritative story (which also came out during the time of last year's G-20 summit in Toronto) on how the G-20 came to be. Shortly after the Asian financial crisis, yes, Larry Summers recognized that there was a growing need to include more voices that the G-7 on matters of global economic governance. However, Summers did not come up with a workable idea until Martin suggested the creation of a diverse group of twenty countries. That done, Summers and Martin began drawing up the list of G-20 participants:

Paul Martin sat in Lawrence Summers' spacious office in the Greek-columned U.S. Treasury building in Washington, searching in vain for a piece of paper. With none in sight, the two men grabbed a brown manila envelope, put it on the table between them, and began sketching the framework of a new world order.

It was April 27, 1999. For the past five years, the global economy had shuddered under a string of massive debt defaults – first in Mexico, and then in Southeast Asia and Russia. In each case, Western leaders and bankers responded by prescribing harsh fixes, throwing one developing economy after another into recession.

As crisis followed crisis, Mr. Martin, then Canada's finance minister, became convinced that major developing nations had to be given a voice – not just an ultimatum – when it came to discussing their place in the global economy. But in the capitals of Europe and the corridors of Washington, the answer was always the same: It's our club, and there are no vacancies.

Or at least it was the same answer until that April day when Mr. Martin visited Mr. Summers, then Bill Clinton's nominee for treasury secretary, to press his case. He argued that they couldn't keep imposing solutions on developing countries. The G7 had to be expanded – at least at the finance-ministers' level. Mr. Summers quickly agreed. But that was the simple part. Much thornier was the issue of who would be admitted to the club.

With the manila envelope in hand, the two began jotting down countries. China, India, Brazil, Mexico – these were obvious choices. So was South Africa, the biggest economy on its continent. But who else? “I felt very strongly that it had to be the regional powers,” recalls Mr. Martin. “Larry felt that, and then he also had geopolitical concerns. I would love to say we sat down and ran the numbers on whose GDP was bigger, but we didn't. We both had a pretty good perspective on where things lay.

Thailand was the nexus of the Asian banking crisis, but Indonesia was more influential in the region. Indonesia in; Thailand out. Chile was tempting, because it was democratic and well-run, but Argentina was a bigger player. Argentina got the seat. Saudi Arabia was strategically important and a good friend of the United States. The Saudis would get an invite.

So it went until they had compiled a working list of roughly 20 countries – literally, a back-of-the-envelope blueprint for what would become, today, the most powerful forum on economic and political matters in the world: the G20.

I have just excerpted the introduction above; the rest is of course required reading for anyone with an interest in global governance. It is disconcerting that a supposedly more inclusive club representing about 80% of the world economy was effectively drawn up by two powerful white men, but that's indeed the case. Still, it's up to developing countries whether they can use their voices effectively in global governance matters such as IMF succession where they've squandered a perfectly good opportunity.

Also see Martin's 2005 article in Foreign Affairs that lays out his rationale for expanding mechanisms for global governance. To give credit (or blame) where it's due, Paul Martin is the father of the G-20.

How can we transition into a more balanced world economy? Today, Jean-Michel Severino joined the man generally associated with the topic, Martin Wolf, in trying to suggest ways of doing so at the LSE. Martin Wolf's take is generally well-known as he regularly issues commentaries in the Financial Times where he is the chief economics commentator. However, Jean-Michel Severino, formerly of the World Bank and late of the French development agency Agence francaise de developpement (AFD), was something of a revelation to me.

Severino argues that, considering postwar history, the stand-out example of economic development remains that of export-led development. However, this poses an obvious quandary: while almost every sensibly run nation on earth professes increasing exports to be desirable, global markets represent finite demand. In other words, unless we can export to, say, Mars, we are bumping up against logical limits to what can be absorbed if developing countries continue to pursue export-led development as one would expect them to do given its track record.

The usual answer is to create demand in export-led economies as a transition that must be made in order to facilitate global rebalancing. However, the track record of the pioneers of such export-led growth is not encouraging. For many different reasons--inertia and demographics among them--Germany and Japan have singularly failed to make this transition. It is far easier to stick to "tried-and-tested" formulas for success that, truth be told, hamper processes of global rebalancing.

So we come to China. The PRC is famously prone to calling for changes in its economy. Remember Wen Jiabao calling his country's economy unstable, unbalanced, uncoordinated, and unsustainable in 2007? The Communist Party's 11th Five-Year Plan dating from 2006 already alluded to creating more domestic demand. Suffice to say that, in the five years since then, it hasn't really materialized. And yet the 12th Five-Year Plan makes similar allusions. Although one certainly hopes China can create domestic demand on an appreciable scale, you have precious few instances--if any--of major exporters making this shift. Alike Germany and Japan, China too faces demographic challenges of a largely programmed nature due to modern incarnations of its one-child policy.

However, given the sheer size of China and the magnitude of its contributions to global economic imbalances, pressures for it to help in processes of rebalancing are appreciably greater. I surely hope it manages this feat for the odds are certainly against it and there are definitely ingrained habits of relying on exports already whose lock-in effects need to be counteracted lest we lurch into another 2008-style disturbance. Martin Wolf made the fearful point that both 1929 and the advent of the WWII were in their own ways significant rebalancing acts [!] Hopefully matters don't come to such drastic conclusions, but you never know.

Having published in a geography journal sometime ago, I take a natural interest in urban studies as a field of study. To be honest, I cannot determine what distinguishes a social science work from one in human geography. Being ever so pedantic, I like pointing out that social science research is inescapably grounded in spatial coordinates, hence the near-automaticity of it being "geographic."

That qualifier aside, urban studies should be of great interest to practically everyone interested in the social sciences. Sometime in 2008, more than half of the world's population lived in urban areas for the first time in human history. This shift necessitates thinking about how to make urban environs more liveable given that more and more persons now choose to live in closer proximity to one another. Civil engineering and urban planning are among the many applied sciences gaining practical interest in solving challenges facing urban dwellers. Not that they are particularly unique and now constitute a majority of the world's population as the demographic transition continues apace or arguably even accelerates.

While this ongoing shift to city life provides many with newfound opportunities, urban blight remains a particular concern. A few days ago, another research centre here, LSE Cities, launched its latest photo essay / statistical compilation entitled Living in the Endless City. (The previous volume was simply entitled Endless City.) Among other factoids like the one in the title, cities constitute 2% of the Earth's surface area but hold 53% of its population. An ever-worsening byproduct of this movement towards massive cities is the expansion of slums. Often lacking access to water, electricity, sanitation and other things we take for granted, they pose challenges to any urban planner. In the past, they used to be viewed entirely negatively, but more recent research now considers them in different ways. Though significant problems obviously remain, they offer some uniquely creative solutions to unavoidable problems alike space utilization and have often bred entrepreneurial activity.

Unfortunately perhaps, Living in the Endless City paints a rather more pessimistic view of what's to come that borders on the Malthusian. Why do people choose to live in conditions of increasingly shared misery exemplified by megacities? Although previous megalopolises were already impressive conurbations, the future portends--you guessed it--the endless city:

Fifty per cent of the world's population currently live in cities with 33 per cent of city dwellers currently living in slums. By 2050, 75 per cent will live in cities with half the world's population will be living in slums...

Cities and their designs matter. With half of the seven billion people on earth living in cities, a substantial portion of global GDP will be invested in energy and resources to accommodate new city dwellers over the next decades. The cities of the 21st century will see new waves of urban construction, and the shape of our cities will have profound impacts on the ecological balance of the planet, and on the human conditions of people growing up and growing old in cities.

Living in the Endless Cities sets out to address pressing issues, such as why are so many cities continuing to grow? What is the complex relationship between urban form and city life? How can we intervene at all levels to bring about positive change? Has the model for the western city become redundant in the face of globalisation?

The investigations of the Urban Age Project have found that cities are becoming more spatially fragmented, more socially divisive and more environmentally destructive. These are the challenges and threats faced by the next generation of urban leaders who are tasked with steering their cities through what will be complex and difficult times. But the narratives also suggest that cities are uniquely placed to harness their human and environmental potential, guiding urban growth towards greater social and environmental equity. This will be the main task for the mayors, governors and city leaders of the emerging cities in the future.

The future is still up in the air. As if global governance did not have enough challenges yet, add the milieu of urban sprawl on a previously unimaginable scale to everything else. From American-style gated communities to a gated planet (inequality); city dwellers living in close proximity who are virtual strangers to a world of strangers (social division); and infrequent municipal trash collection to planetary heaps of waste (pollution): cities will be the locations where the global human drama will unfold in the coming decades, for better or worse.

Here we go again, another South China Sea entry after I'd written about the issue in recent months [1, 2,3]. I am of two minds about this new petition circulating among those of us from Southeast Asia to change our term for the 'South China Sea' to the 'Southeast Asia Sea'. (This one comes from the US-based Nguyen Thai Hoc Foundation named after the Vietnamese nationalist executed by French imperialists.) It comes amidst new quarrels between China on one hand and the Philippines and Vietnam on the other over dominion over these strategically important waters. To be sure, Southeast Asia is emerging on the global stage in its own right not just as an appendage of China. Geographically speaking, 'Southeast Asia Sea' is also more accurate given the rather sweeping claims China has on the region.

Should I sign on to the many who've added their names to the petition? The Spratly Islands issue continues to be a highly visible demonstration of how the 'Chinese Communist Party' is not a monolithic entity. Different ministries often do not act in a coordinated fashion. While the People's Liberation Army (PLA) is very gung-ho on the matter, other bodies alike China's trade ministry is more cautious, likely preferring that the matter would go away altogether. For, China has in recent years become Southeast Asia's largest trading partner, and those who have built up such linkages would be understandably reluctant to strain these ties as the PRC seeks to consolidate its backyard. So, in this interpretation, the PRC would lose next to no sleep if Southeast Asians began calling it whatever they wish.

But, the other thing to remember is that China would likely annihilate whatever navies the Philippines and Vietnam could muster if push comes to shove. On the open seas, insurgency tactics against superior forces are not usually effective. Would it act so rashly as to violate the 2002 Declaration on the Conduct of Parties in the South China Sea?I surely hope not.

In any event, those promoting this petition generally believe that a change of terms can affect the tone of the debate. There are arguably better reasons for calling it the 'Southeast Asia Sea' than its current name. Aside from removing the parochial Sinic overtones--it's called the South China Sea, so it must 'belong' to China--it also has the potential to improve Southeast Asian identity at a time when its countries are also emerging alike Indonesia being included in the G-20.

A petition to change the name “South China Sea” to “Southeast Asia Sea” has been launched, with 43,109 signatures posted online so far for its approval. According to online social network www.Changeorg., the Nguyen Thai Hoc Foundation, a group of volunteers campaigning for “a modern and civilized attitude” around the world, started the petition in November last year.

In its petition, the group said the United Nations has officially recognized Southeast Asia as a region encompassing almost the entire South China Sea. The South China Sea has a coastline of about 130,000 kilometers (81,250 miles) while Southern China’s coastline measured only about 2,800 kilometers (1,750 miles), it explained. “The freedom of navigation on the sea is not restricted to a specific country and is a common heritage of mankind,” the group said. “It has actually been used by the international community for centuries as the second most important water channel in the world, and therefore must be considered a common ground.”

The petition had been sent to presidents and prime ministers of the 11 Southeast Asian countries, the Secretary General of the United Nations, the United Nations Atlas of the Oceans, Geographic Society of 10 countries, including Australia, Canada, European Union, France, Germany, India, Japan, South Korea, United Kingdom, Russia, and the United States, and over 10,000 people from 77 countries around the world.

“In this modern era, as human civilization evolved towards a multi-faceted global collaboration, the international community, since the 20th century, has geographically formed a sub-region in Asia to address mankind’s need,” the group said.

“This region was officially named Southeast Asia and consists of Burma, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Singapore, Thailand, the Philippines, and Vietnam...Southeast Asia represents approximately 600 million people who have, in a joint effort, made unique and original contributions to modern civilization in culture, science, education, economics, politics.” South China Sea must therefore be named Southeast Asia Sea, the group said.

Decisions, decisions. Sign up if you must. I certainly won't dissuade you, but I am still weighing the pros and cons at the moment. Still, I must admire this show of Southeast Asian unity because there is honestly so little of it that I can observe.

In Chinese, gweilo (鬼佬) is a traditional epithet against "foreign devils" that, due to its common use, has lost much of its condescending tone. Indeed, Westerners often describe themselves as such in the PRC to deflate suspicion about themselves. Today, however, we have a potential Faustian bargain with the many (sorry) gweilo who run international financial institutions that may see to it that China sticks the knife into its fellow LDCs when it comes to the matter of IMF succession. Merde!--as Lagarde might exclaim in her less guarded moments.

I've just attended a very interesting talk by Yves Tiberghien who should be familiar to those interested in Asian political economy. This particular presentation concerned China's G-20 role. As you all know, my lost cause of the moment (I have many) is someone from an LDC becoming the next IMF chief to succceed the now-infamous Dominique Strauss-Kahn. We are down to two candidates, France's Christine Lagarde who's favoured by the Europeans and Mexico's Agustin Carstens who's favoured by a handful of Latin American countries. Supposedly, China is still considering throwing support behind Carstens (someone must be chosen by month's end). From our favourite official publication, China Daily:

Agustin Carstens, governor of the Mexican central bank, said on Thursday that China promised to take his bid to be the first non-European managing director of the International Monetary Fund (IMF) seriously and that the Chinese government is in the process of making a final decision.

After making a quick visit to China, Carstens told a press briefing in Beijing on Thursday that he has held "very fruitful" discussions on his candidacy with his Chinese counterpart Zhou Xiaochuan and with Finance Minister Xie Xuren. He insisted that his position as a non-European will be an advantage in the race and that his experience in Latin America will be particularly useful because the IMF position should be filled by an expert in crisis management.

I have to put this down as a (fairly likely) rumour, but the word in policy circles according to Yves Tiberghien is that the die is already cast. The primary interest of China at this time is to get one of its own in a high-ranking position within striking distance of becoming IMF managing director (that is, deputy managing director #2 or #3). So, when this post becomes open once again, he will be well-placed to become the first IMF head from an LDC. Which, I must point out, is also Carstens' strategy--while he may not win this time around, he is hoping to garner enough name recognition to be the front-runner next time.

Instead, China is placing its bets on Zhu Min. He has been the deputy governor of the PBoC and was a special advisor to Strauss-Kahn before the latter's ignominious fall. In fact, the China Daily article continues to allude to this desire of the PRC:

"Carstens' trip to China may be of little use because the country will probably endorse Lagarde," said Guo Tianyong, economist at the Central University of Finance and Economics. He said Lagarde's proposal is in line with China's interests, and that her gathering of wide support will influence China's decision.

To win over China to her candidacy, Lagarde said she supported the decision to increase China's voting rights at the IMF from about 4 percent to nearly 6.4 percent. She also said Zhu Min, the former deputy governor of the Chinese central bank and the current economic adviser to the IMF managing director, should play a more significant role in the fund.

China now being the IMF's second largest contributor, the supposed deal goes like this: the PRC will throw its weight behind Lagarde for the top post, but it expects the Europeans to do the same with a deputy managing director post for Zhu Min:

While the competition for the top slot is becoming fiercer, there is also a jostle among candidates wanting to occupy a deputy-managing director post. That has drawn much attention from Chinese analysts, who believe a Chinese has a better chance at obtaining that position. "It's time for China to recommend a Chinese to be deputy managing director, or even acting managing director of the fund," Guo said. "Zhu Min's experience is well qualified for that position."

Sun Lijian, deputy dean of the School of Economics at Fudan University, said Zhu Min has a good chance at winning the position. "It is very natural that a Chinese person should be in that post, because China has performed well in the financial downturn and contributed a lot to the world economy, which is well recognized throughout the world," Sun said.

He added that the weak recovery of the US and European economies will make the IMF prefer to raise more capital from China and other emerging economies. "Zhu Min's position as deputy head looks logical, especially since China is already the second-largest economy in the world," Sun said. "European countries should give their full support."

Has China sold out its third world colleagues for the sake of its own interests? I certainly hope Tiberghien is mistaken, but I doubt that he is.

UPDATE: Also see Sebastian Mallaby in Foreign Affairs on the question of IMF succession.

Some rich men came and raped the land; nobody caught 'emPut up a bunch of ugly boxes and Jesus people bought 'emAnd they called it paradise--the place to beThey watched the hazy sun, sinking in the sea

[NOTE: I almost missed this one, but it's better late than never. Might as well cue up "The Last Resort" by The Eagles while you're at it.] There's something profoundly distasteful about the whole process of warming over Mother Earth to exploit her oil and gas resources in the Arctic. Which, when used, will further worsen global warming. As most of you know, melting of ice up North has prompted all sorts of manoeuvring to secure future exploration rights among the Nordic countries, Canada, the United States, and Russia. Recently, the major nations in the impending Arctic oil grab got together and signed the Nuuk Declaration. The World Policy Institute provides a brief description:

On May 12, the 7th Arctic Council Ministerial Meeting convened in Nuuk, Greenland. The Arctic Council is a high-level intergovernmental forum created to promote cooperation among the Arctic states. Its members are Canada, Denmark (via Greenland and the Faroe Islands), Finland, Iceland, Norway, Russian Federation, Sweden, and the United States. Permanent participants include indigenous organizations such as the Inuit Circumpolar Council (ICC) and the Saami Council. Unlike member states, permanent participants do not have voting rights.

The meeting, attended primarily by foreign ministers, produced the first legally binding agreement arrived at by the Arctic states since the formation of the Council in 1996. This agreement requires states to cooperate on search-and-rescue operations, including giving permission for all states to traverse foreign waters when necessary. The eight Arctic states also formally agreed to jointly develop measures for oil pollution preparedness. Finally, the Nuuk Declaration also noted that the Arctic sea ice is melting at a faster rate than previously predicted, accelerating access to oil and gas reserves and opening up new sea routes for commerce and tourism.

However, the more interesting behind-the-scenes story involves diplomatic manoeuvring by the main players. While the Nuuk Declaration was being negotiated, WikiLeaks published a series of cables online pertaining to US policies concerning the Arctic. We might as well use some "Internet Freedom" right here, ey? (This story involves our Canadian friends so the lingo should be accurate ;-) As it turns out, the haughty Americans who usually avoid intrusions on national sovereignty at the UN are now considering signing on to UN Convention on the Law of the Sea according to leaked cables. This to be better placed to economolest Mother Earth when the time comes. From the first cable:

4. (C) D said the Administration continued to urge the Senate to ratify the UN Convention on the Law of the Sea (UNCLOS), and had not given up all hope of achieving this during the Bush Administration. Ratification was clearly in the U.S. interest. [Danish Foreign Minister Per Stig] Moeller agreed, joking that "if you stay out, then the rest of us will have more to carve up in the Arctic."

Then there are predictions verging on the edge of conspiracy theory that future energy revenues will allow Greenland to become independent of Denmark. Naturally, major American energy firms are keen on approaching the players there for...future collaborations. These from Cable 129049 from the Copenhagen embassy in 2007:

2. (SBU) Summary: Greenland is on a clear track toward independence, which could come more quickly than most outside the Kingdom of Denmark realize.

3. (SBU) With Greenlandic independence glinting on the horizon, the U.S. has a unique opportunity to shape the circumstances in which an independent nation may emerge. We have real security and growing economic interests in Greenland, for which existing Joint and Permanent Committee mechanisms (described reftel A) may no longer be sufficient. American commercial investments, our continuing strategic military presence, and new high-level scientific and political interest in Greenland argue for establishing a small and seasonal American Presence Post in Greenland's capital as soon as practicable. End Summary.

14. (SBU) One senior Greenlandic official commented recently that his country (Greenlanders and many Danes alike routinely refer to Greenland as a ""country"") is "just one big oil strike away" from economic and political independence.

Chevron and ExxonMobil are part of an international consortium exploring off Greenland's western coast, and the U.S. Geological Survey is completing an assessment of Greenland's potential oil and gas reserves. Its initial findings suggest Greenland might have reserves to rival Alaska's North Slope. To help the Greenlanders secure the investments needed for such exploitation, I recently introduced Home Rule Premier Enoksen and Minister of Finance and Foreign Affairs Aleqa Hammond to some of our top U.S. financial institutions in New York.

Hence the US engaging in all sorts of public relations efforts in Greenland. This being the 21st century, there's even paranoia about the Chinese wanting in on the action and thus the need to ward them off:

Our international visitor invitations, English teaching programs and joint scientific/environmental projects have reinforced Greenlandic desires for a closer relationship with the United States, just as Greenland assumes ever-greater charge of its international relations and edges closer to full independence. Our intensified outreach to the Greenlanders will encourage them to resist any false choice between the United States and Europe. It will also strengthen our relationship with Greenland vis-a-vis the Chinese, who have shown increasing interest in Greenland's natural resources… While Greenland has long been believed to possess significant hydrocarbon and mineral stocks, only in the last three to four years -- with the rise in world oil prices -- have international investors have begun to seriously explore Greenland's potential. An American Presence Post in Greenland would provide us with the needed diplomatic platform to seek out new opportunities and advance growing USG interests in Greenland.

Just when I was going to reach for my hankie over how all these nations were concerned about "the conservation, sustainable use and protection of Arctic flora and fauna for the benefit and enjoyment of present and future generations, including local populations and indigenous peoples" as per the Nuuk Declaration, I was plunged back to naked reality. It's an Arctic land grab, plain and simple. Will Greenland really be the 194th country after South Sudan? A question worth pondering, perhaps.

Who will provide the grand design?What is yours and what is mine?Cause there is no more new frontierWe have got to make it here

We satisfy our endless needs and justify our bloody deedsIn the name of destiny and the name of God

What constitutes knowledge? Questions of epistemology underpin many of the debates in the social sciences--especially the supposed divide between the "objective" and the "subjective": Should we focus on the generalities of several cases or the particularities of each? Are there universal laws governing behaviour or is it relativistic? These are hard questions to answer that surround any number of human endeavours. The global financial crisis is certainly one, when many attributed the desire to blandly generalize Anglo-Saxon assumptions as leading many into temptation. Hence Greenspan's (semi-)confession that the self-regulating market may not always correct itself. Today, though, consider a slightly sportier field encountering a similar debate--soccer. Money changes everything, including time-tested managerial practices, it seems, judging by a number of things.

Many, many years ago, Robert M. Pirsig had a surprise bestseller with the creatively titled Zen and the Art of Motorcycle Maintenance that considered the objective/subjective divide through the lens of keeping his bike in good condition throughout his travels. While quite an interesting, introspective read, let me confess that I didn't know what he was writing about most of the time. (At a lecture I attended, famed sociologist Anthony Giddens joked he'd been around when even he had trouble understanding his earlier writings, and I suspect Pirsig may encounter the same problem re-reading this book.) At any rate, I also read the follow-up book Lila which pursues similar themes. My takeaway--don't ask me to explain--is that Pirsig believes the objective-subjective distinction is an artificial divide.

This medium-winded intro bring me to an interesting article in FT Weekend by sportswriter Simon Kuper on the growing statisticization of soccer (football). Although baseball has long been the domain of number crunchers due to its stop-start nature which is said to make it amenable to statistical analysis, the international big bucks in soccer have made it a natural target. Moreover, with another fluid game having been "colonized" already in basketball, it was only a matter of time before the quant jocks invaded soccer's locker room.

Talking about motorcycle maintenance, we turn to the matter of football team maintenance. It certainly looks as if the quant jocks will be given more input in managerial decisions, especially squad selection. It is here where supposedly "objective" number-crunching will begin bumping up against "subjective" gut feel and intuition. At any rate, the questions are similar for soccer as they are in other activities where the objective/subjective distinction manifests itself:

Is soccer an activity in which statistical analysis plays a role?

If so, what statistics are meaningful bases for player comparisons?

Which team statistics correlate with win/loss records?

Do stats provide a superior basis for making decisions than managerial experience?

There are dozens and dozens of these sorts of questions you can come up with. Kuper provides many examples of the quants and traditionalists brushing up each other, often unhappily. What follows though is a mini-history of the use of data collection in the Premier League by two top managers, Sir Alex Ferguson of Manchester United and Arsene Wenger of Arsenal that paint a decidedly mixed picture. The former has developed a more cautious view of the technology after mistakenly letting go of a player based on "Type II" error and remains a seat-of-the-pants manager who's won many more trophies since. The latter is still a numbers junkie who famously hasn't won a major trophy in five years:

But the broader breakthrough came in 1996, after the Opta Index company began collecting “match data” from the English Premier League, explains the German author Christoph Biermann in Die Fussball-Matrix, the pioneering book on football and data. For the first time, clubs knew how many kilometres each player ran per match, and how many tackles and passes he made. Other data companies entered the market. Some football managers began to look at the stats. In August 2001 Manchester United’s manager Alex Ferguson suddenly sold his defender Jaap Stam to Lazio Roma. The move surprised everyone. Some thought Ferguson was punishing the Dutchman for a silly autobiography he had just published. In truth, although Ferguson didn’t say this publicly, the sale was prompted partly by match data. Studying the numbers, Ferguson had spotted that Stam was tackling less often than before. He presumed the defender, then 29, was declining. So he sold him.

As Ferguson later admitted, this was a mistake. Like many football men in the early days of match data, the manager had studied the wrong numbers. Stam wasn’t in decline at all: he would go on to have several excellent years in Italy. Still, the sale was a milestone in football history: a transfer driven largely by stats.

At Arsenal, Wenger embraced the new match data. He has said that the morning after a game he’s like a junkie who needs his fix: he reaches for the spreadsheets. In about 2002 he began substituting his forward Dennis Bergkamp late in matches. Bergkamp would go to Wenger to complain. “Then he’d produce the stats,” Bergkamp later recalled. “‘Look Dennis, after 70 minutes you began running less. And your speed declined.’ Wenger is a football professor.”

Go figure. I'll make that time-tested cop out and say that managerial judgement is important for complementing technology in determining what statistics matter and their proper interpretation. At any rate, I certainly would welcome judicious use of number crunching to avoid tremendous wastes of money a laAbramovich.

One of the most insightful books I've read concerning the remarkable durability of anti-developmental regimes is Nicolas van de Walle's African Economies and the Politics of Permanent Crisis, 1979-1999. Why is it that so many regimes are able to cling to power despite providing so little in terms of delivering a higher standard of living? Foreign Affairs provides a cogent summary of this book's main idea that international lenders inadvertently keep this situation going:

Then, in a devastating analysis of international aid programs, [Van de Walle] demonstrates how Western donors and lenders, including the World Bank and the International Monetary Fund, have systematically if unwittingly undermined the institutional capacity of African states to manage reform and growth. Nondevelopmental regimes, he argues, have thoroughly mastered the art of bait and switch, swallowing just enough reform medicine to keep aid flowing but not enough to end the "permanent crisis" of underdevelopment. Entrenched patterns persist even in states that have undergone promising democratic regime change. Genuine economic transformation, Van de Walle hypothesizes, ultimately depends on fundamental political changes that must come from within; meanwhile, the present aid regime remains counterproductive.

From here let us turn to a decidedly nondevelopmental regime in Belarus. Fresh from receiving emergency IMF funding at the end of 2008 when the global financial crisis was in full swing, it is once again lurching from one bad situation to another.

At present, Belarus has next to no foreign exchange reserves. It has a current account deficit that's 16% of GDP. Its currency has been devalued by 36% in an attempt to stave off the inevitable. In a little over two years, it has once again sought IMF support. You would think that such terrible economic stewardship would have ejected strongman Alexander Lukashenko by now. But no. As in many African nations, Belarus has its own version of the politics of permanent crisis that, contrary to what you would expect, may only serve to secure his position as it has in the past. Despite obvious financial mismanagement, Lukashenko manages to stay in power by keeping some semblance of reform.

Note that Belarus is also approaching Russia for emergency funding, though Russia is keen on promoting state asset sales before lending that one suspects would ultimately benefit Russian interests. Hence the IMF is oddly more attractive at present to a leadership keen on keeping its possessions intact. Conversely, you wouldn't expect the IMF to force privatizations given the criticisms it endured during the Asian financial crisis. End result? Don't expect Lukashenko to go despite everything. If push comes to shove, there's still Russia even with its "conditionalities":

Belarusian opposition members whose family members and colleagues have been sentenced to years in prison for protesting elections said a worsening economy may not herald the end of President Alexander Lukashenko’s regime. “If the economy crashed, Lukashenko wouldn’t have to turn to the West -- he could turn towards Russia instead,” Andrey Dmitriev, who was chief of staff for presidential candidate Vladimir Neklyaev in the run-up to the December 19 elections, said in an interview in Warsaw.

Despite a misfiring economy largely of his own making, Lukashenko is blaming foul play to eject him:

The IMF has warned the country must curtail spending, raise interest rates and liberalize its managed exchange-rate system as foreign reserves slide and the current-account deficit soared to 16 percent of gross domestic product.

Lukashenko, in an April 21 speech, said there were “efforts to spur panic buying in the foreign exchange and consumer markets, with the assistance of domestic and foreign analysts.” “It’s obvious that someone is eager to destabilize the country, and sow chaos and distrust of the government, and after the problems that ensue could later strangle our country and our independence,” Lukashenko said.

What has happened in the arena of international politics? The IMF team which descended on Minsk recently as Belarus cried for help noted that the problems which beleaguered the country a few years ago that necessitated IMF help remain unresolved:

What should be in the plan? The origins of the crisis lie in excessive credit growth and wage increases that the economy could not afford. The solutions lie in the same places [my emphasis]. The National Bank should restrain credit and money creation. This means limiting credit under government programs and increasing interest rates to at least the level of the expected rate of inflation, so that people can be confident that their savings are not being eroded. The government should reduce the fiscal deficit-—we would recommend bringing the budget into balance—-and should not increase government wages this year. It should also discourage large state enterprises from increasing wages. We know that prices are going up, and it is hard to manage without wage increases. But high wage increases will just drive prices even higher and the rubel lower in a vicious spiral.

The foreign exchange market is not working. Very few people are willing to sell foreign exchange at the official rate, and most people who want to buy foreign exchange have to pay for it at a much more depreciated exchange rate. We recommend floating the exchange rate—-allowing the official exchange rate to be set by market forces and allowing free trade in both the interbank market and the cash market.

Then there are the specific politics of permanent crisis wherein Belarus does just enough to keep the IMF sticking around and not abandoning it altogether:

The main purpose of this mission has been to assess the authorities’ economic policies. We have been pleased with some of the economic measures the government is taking [my emphasis]. The government is doing a good job in limiting the budget deficit and in setting limits to lending under government programs. We also welcome the government’s plans to help people who are unemployed and who are poor and are suffering from the effects of the crisis. We also welcome some of the steps the National Bank has taken, including increasing policy interest rates and the recent decision not to provide commercial banks with cheap loans to support their lending under government programs. But we think that both the government and the National Bank need to do more to promote economic and financial stability.

We have also initiated discussions on a possible IMF program. This has only been the beginning of our discussions and we still have a long way to go. We need to have further negotiations on macroeconomic policies. We will also need to agree on structural reforms to improve the efficiency of enterprises and the financial system so that in future growth will be strong and durable. Above all, the authorities have to be committed to macroeconomic stabilization and structural reforms. We will have to agree on strong stabilization and structural measures which would be implemented prior to the program and would demonstrate their commitment. The IMF staff will continue to work with the government and the National Bank to reach a strong agreement which would help the people of Belarus.”

And so the familiar cycle is set to begin anew: same problems, same actors, same prescriptions. Meanwhile, in the absence of real institutional reform--the sort of which should really come from Belarus' citizens instead of from IMF conditionalities--I remain pessimistic that the circle will be broken. Not that such action is likely forthcoming; when even Russian state media says so, you know Belarus is in deep trouble. If' I'm still blogging in a few years' time, I suspect that I'll be writing about very much the same things as Belarus heads for yet another crisis. These are not called the politics of permanent crisis for nothing.

It's a fine line: when does lending with conditionalities become intrusive a la the augmented Washington Consensus? Should encouraging regime change in cases such as Belarus be an objective of emergency lending? There's a path to negotiate between prodding a country in a desired direction and interfering with its internal affairs. Lest we forget, there's also Russia willing to help out; perhaps China as well that gives similarly short shrift to attaching strings concerning governance matters. Push too hard and the likes of Belarus may avoid IFIs altogether. Heaven knowns modern-day Russia and China have money to burn.

Well sort of. I've just come from an event hosted by our research centre (LSE IDEAS) on "Turkey In the World" discussing that country's foreign policy. Straddling Orient and Occident, religiosity and secularism as well as several other divides, let's just say Turkey needs to contend with forces pulling it in different ways. Professor Sevket Pamuk of LSE and Fadi Hakura of Chatham House gave a most interesting talk about the subject matter. Being LSE IDEAS' resident migration issues guy, I just had to ask whether Turkey's diminished prospects for EU accession at the current time are temporary based on souring European sentiment. That is, when times turn bad, migrants are usually made the scapegoats.

My line of argument goes like this: France and Germany have been the most active blockers of Turkish EU accession by not opening several chapters of the acquis communautaire to the country. Generally speaking, conservative politicians alike the UMP's Nicolas Sarkozy and the CDU's Angela Merkel disdain migration. Hence, the fear of being overwhelmed by Muslims looms large in the popular imagination if not in reality as Turkey does accept that migration limits would be an unavoidable component of its accession conditions. At best, Sarkozy and Merkel may be the lesser of two evils in co-opting some of the more extreme anti-migrant sentiment emanating from far-right voices in France (Marine Le Pen) and Germany (Udo Voigt). At worst, they are capitalizing on barely concealed racism.

The question for me is if eventual change in leadership to more left-leaning parties in France and Germany would remove this roadblock which has emerged in recent years to Turkish accession. Well guess what: my hopes may have been another victim of Dominique Strauss-Kahn's rather appalling indiscretions. Prior to his New York imbroglio, he was the only member of France's Socialist Party to openly champion Turkish EU accession. With some polls indicating that he would have beaten Sarkozy in 2012, you can figure out what that means for Turkish EU accession prospects. From a 2004 FT article:

Mr Strauss-Kahn also weighed into the debate over Turkey saying the country had a "calling" to join the EU. "If the European Union hopes to play its part, it should take responsibility for the whole of the zone from which its culture and civilisation originated: the north of Europe as well as the Mediterranean. I cannot see it lasting in setting up a sort of barrier in the Strait of Gibraltar and in the Bosphorus," he said.

His comments came a day after Valery Giscard d'Estaing, the former French president, called for the EU to limit links with Turkey to a "privileged partnership".

Ouch! Fadi Hakura does point out though that fading interest in Turkey joining the EU at the current time is mutual (though others are more optimistic). Certainly the troubles of peripheral European states are not exactly an inviting prospect for observers on the Turkish side. Still, it begs the question: are the foibles of DSK alike those of Bill Clinton forgiveable in light of their leadership abilities and vision? The latter found (eventual) redemption; the former may not given that the hour is getting late for him.

Flashing sirens, extra security guards, financial journalists baying for blood, and the incessant chatter of students and faculty debating the virtues of "EU bonds" and "haircuts": Where else could it have been but at the LSE in eager anticipation of the ECB President Jean-Claude Trichet delivering an address? And so it was last Monday afternoon that Europe's Bulwark Against Market Pandemonium came to speak before our central London institution. With various commentators predicting the imminent breakup of currency union--or at least the removal of some of its more recalcitrant members alike Greece, Ireland, and Portugal--this talk was highly anticipated for followers of European integration. Given that nearly all of the world's major geographic regions are engaged in integration projects, certainly the fate of its most advanced project deserves attention.

While we await the LSE Events folks posting the video clip of Trichet's talk online, let us content ourselves with the presentation slides and the transcript from it. While he unsurprisingly gives a fairly optimistic view of EMU's progress to date, something that struck me was his argument that the EU represented no less an optimum currency area than the US based on measures of economic variation. Trichet compares the dispersion of annual inflation, real growth, and unit labour costs in explaining that differences in economic performance among EMU states are not wildly different from those of US states.

This being the IPE Zone, let us set aside the "international" and "political" aspects for now and consider the "economy" of European vis-a-vis American integration according to Trichet. Since you can read the rest for yourselves, I have chosen to focus on differences in unit labour costs (ULC), defined by the OECD as a "measure the average cost of labour per unit of output and are calculated as the ratio of total labour costs to real output." What follows is the chart for the EU:

And here is the equivalent chart for the US:

Both charts set the context for his argument that, well, economic conditions for using a single currency are not all that different across the Atlantic:

Let us go one step further and investigate the sources of this growth dispersion in the US and euro area economies. This reveals parallels even in the root causes of dispersion in economic performance. Both currency areas comprise regions that experienced a significant boom and bust cycle over the past decade. Both also contain regions that are facing significant structural challenges of a more long-term nature.

Nevada, Arizona, Florida and California in the United States, for example, experienced increases in house prices that outpaced the national average by a wide margin. Steep house price increases and the related strong performance of real estate, construction and financial services probably contributed to above average growth in these states.

Some other US states, particularly the former manufacturing powerhouses in the ''Great Lakes'' region, saw a long episode of below average growth at the same time. Below average performance of the region – and particularly weaker growth rates in the states of Michigan and Ohio – are related to strong reliance on manufacturing. Structural shifts in the US economy towards services have gradually reduced the value added of manufacturing relative to GDP, with implications for areas with a high concentration of companies in manufacturing industries other than information and communications technology.

The sharp fall in house prices in Florida and the south-western US states turned boom into bust. These states experienced the harshest recession among the US states. But GDP growth in the ''Great Lakes'' region, which was below average before the crisis, also remained below average during the crisis.

Some euro area countries experienced asymmetric boom-and-bust cycles similar to those just described in the United States. Several euro area countries had higher than average growth in the pre-crisis years, while a few have experienced growth below the euro area average for the past decade due to structural issues that could have been tackled with more determination.

The effect of the crisis on the different euro area economies follows a similar pattern to those of comparable US states. The countries in the euro area that have been hit hardest are those in which either large asset-bubble driven imbalances unwound or structural problems were left unaddressed before the crisis. More specifically, Ireland and Greece, in particular, remained in recession in 2010.

Those countries that have yet to implement more far reaching structural reforms also have relatively low growth prospects after the crisis. Just a few years ago, Germany was – entirely wrongly – labelled the “sick man of Europe”. Yet Germany is now an example of how big the dividends of reform can be if structural adjustment is made a strategic priority and implemented with sufficient patience.

And then he zeroes in on differences in labour cost as a yardstick for competitiveness:

The relatively low growth rates in some countries are linked to a deterioration of competitiveness, driven, for example, by persistent above average unit labour costs. Ahead of EMU, unit labour costs converged in the euro area. What is more – disregarding the most recent countries to join the euro area – dispersion both ahead of the crisis and during the crisis was very similar in the euro area and the United States.

At the same time, it is worth noting that both currency areas include regions with persistently above or below average growth of unit labour costs. Again leaving aside the most recent countries to join the euro area, here, Greece, Portugal and Ireland, in particular, have lost competitiveness vis-à-vis their main trading partners in the euro area. Germany, in contrast, has been able to lower relative unit labour costs over the same period.

Similar persistent losses and gains in competitiveness are also observed in the United States. Some states have experienced large or persistent increases in unit labour costs, currently exceeding the national average by as much as 20%. Other states, on the other hand, have been gaining competitiveness vis-à-vis the national average over the past decade.

In summary, these results suggest that those who are questioning the viability of the euro area as a single currency area on the grounds of economic heterogeneity are misguided. Over the past 12 years, this has been broadly similar in the euro area and the United States.

So divergences in economic performance among member states in the EMU and US may not be all that different, but then there are matters of international and political configuration. While American federalism may not bind states to the central government as tightly as in some other countries, its working principles for sovereignty are more worked out than those in the EU where supranational authority is still in question. What is Trichet's solution? Being a Frenchman at an institution modelled after the Bundesbank (the ECB), more central surveillance is his reply:

The existing economic governance framework has been incorrectly implemented and, more importantly, has proved to be insufficiently binding while lacking appropriate comprehensiveness.

Today’s reform of the governance framework has to take the current constitutional framework. We have to accept this situation as a given, at least for the foreseeable future, even if I am convinced that we have already to reflect upon further steps for economic governance in the longer term. Today, we have to empower the institutional arrangements that are already in place to the point at which they can really and durably inspire confidence.

The requirements for a very significant reinforcement of the fiscal surveillance of the Stability and Growth Pact and for the creation of a new surveillance of competitive indicators and macroeconomic policy have been discussed widely and in much detail.

As you may know, the ECB takes the strong view that there is the need for more speed and automaticity in the sanctioning mechanism, particularly in the Stability and Growth Pact, but also in the broader macroeconomic policy surveillance framework. The experience of the past months has vividly demonstrated the importance of a timely correction of internal and external imbalances.

Argue if you will with his logic, but it is very much in the "ever-closer union" vein to prevent future crises. Left to their devices, errant members will misreport macroeconomic data to paint a brighter picture of their national situations. To mitigate this "moral hazard," they must be more accountable to the centre. Surely it's a familiar if controversial notion, but that's roughly where the thinking of ECB powers-that-be lies at the current time.

Would Greece have been let into the EU if the true rottenness of its finances were known beforehand? Or, would Greece's situation have been addressed earlier had the magnitude of its problems been known at an earlier date? The ECB is keen on not losing any more sleep in the future over such counterfacturals through far more vigilant scrutiny.